AZZ - Earnings call transcript Q2 2019

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning, ladies and gentlemen and welcome to the AZZ Inc.

Second Quarter Fiscal Year 2019 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. At this time, I would like to turn the conference over to Joe Dorame of Lytham Partners. sir. ahead, go Please

Joe Dorame

August Good review thank AZZ the quarter XXXX the Denise. us Inc. for today second ended year fiscal to financial of XXXX. morning you, you and joining for XX, Thank results of

Dorame, As Lytham Partner Partners. is of Managing Denise name indicated, my Joe

Please Officer After will On the session. the Relations today’s slide a today’s remarks, at we Executive Information conclusion the a company Paul call Fehlman, question-and-answer www.azz.com. Tom Ferguson, under are page be of there call Mr. Mr. Chief open presentation for which representing Financial call, Investor Chief found the is and note Financial Officer. prepared AZZ’s on for can

response for and filed fiscal XX, United with Securities the XX-K and the by and and year Commission, changes the uncertainties to risks Annual natural are raw on markets, XXXX. which result of update Form are conference assurance hereof markets conditions team hot-dip forward-looking involve shipments; experienced the XXXX. including Act electrical on a statements to not of economic prove AZZ Before as will some call meaning Reform delays generation power products zinc company’s that from such AZZ in to, contain any distribution domestic; ended remarks, information remind would we of Private forward-looking gas, and correct. the employees With stability of certain and including foreign Those include, in to demand but and AZZ. this February States requested future statements availability Report risks of the with to changes forward-looking markets; may this to the Exchange turn prices the the Litigation implement like statements would of material Except I the exchange to various events demand the or Officer that as costs, statements prepared and industrial in information, assumes the that of conference call time-to-time political AZZ said, Tom? forward-looking Executive within in of based coatings markets are of customer the the Mr. historical I uncertainties, during of which by fact, company, The are to transmission new the give documents the limited constitute customer for services statements begin obligation date and management company management Securities galvanizing call detailed that financing including everyone Ferguson, otherwise. made can adequate offered currency by and metal markets, and by statements whether the acquisition no process; These and used Chief and no be like AZZ Tom of over growth opportunities; strategies. serves, rates; and statements

Tom Ferguson

year Thanks, for second this our you to thank call and earnings morning. Joe. Welcome us quarter fiscal joining XXXX

We maintain hoping the believe and traction both XXXX growth for we versus we as As into noted last year. call, had that XXXX. on fiscal double-digit continue to fiscal lines were we solid QX accomplished with we bottom positive top

were gain wages front continues Coatings operational, our highly to to Operating business focused good businesses plants, cost will margin ensure by high are businesses sales, several procurement as margins while target some believe our XX% our of core and improvement this traction of to two full have improvement quarter the efforts Powder We growth of Metal it less of kettles, core on to raise show as certain the share we strengthen while still we still second markets. Coating within direct and consolidating with up margins and through labor is several on a balance record initiatives. activities. in the current our their enough on have growing impacted to somewhat disruption market our had guidance active as the in regain higher flowing zinc remain XX% We and that well make both year. for look the impact negatively outside, the While challenges we is galvanizing, Coatings year likely revenues. than the portion momentum the for as operating our will overall M&A be Metal from

focus us Energy direct second drive positive at for real challenging, this summer invest we improve turnarounds improve these System, industry The balance of demand is retention continue through higher efficiencies spite call DGS have year The selling some market and our in year, on higher now galvanizing solutions improve allowed to our operations and market added plant sector in experienced improvement that our galvanizing us service enclosures, for which Powder year. in our this is labor related of value improve greater skilled the remain The a DGS of markets, right-sized throughput impact international at will improved Galvanizing we to to segment’s weak Due and a improved half hiring. to to or that volume a grow plants. and welding margins to we leading digitizing our and switchgear and wages productivity continuous nuclear and their also efforts We season this be business the galvanized the will changes of for us the rebar In next products. environment time these The normal help coming platform in in plants and improvement our with market, but into selectively improve outages. oilfield in plants with electrical so on quarters. labor attract and the particularly continues We to to we opportunities. Coating the see have confident our take in initiative for continues pricing. the all will some poised can reorganization We Digital and back continue data. believe and labor drive opportunities to productivity work nuclear increase the share XX customer several and to have electrical allowing short tight

We have to bus, segment not high been have voltage nuclear this a backlog quarter. the but Tariffs with a only able large second bus. had large replace impact for voltage on projects in the medium minor

operation Energy of businesses third converting segment to we enter demand improved us actions. Chinese are the in in venture give Overall, any to wholly quarter. or to are we control of a and trade better the owned more We seeing as responding flexibility our tariffs process new our in most joint

infrastructure look we our continues in plants as demand Metal solid fabricators we forward, As see in busy regions of and are most grow. to spend most Coatings

While labor not been increased we offset cost. have from prices, able the zinc to and the we majority have of higher impact

improving and We to Baton to to facility into We efficiency also while upgrading are two to price are continuing Louisiana these productivity on provide offset Rouge plants costs. increased focused marketplace. improve the and outstanding service the that facility realization did consolidate customer

market where hand, share defending customer other while to on some markets focusing take competitors by we attempted at the have satisfaction price are more the more competing market also aggressively level. On

future and begun a demand to for which look Coast be As for growth for build in increased the GalvaBar a of GalvaBar at improved year may area. looking demand East we is Powder unique. selling progresses, would see our helped integrated probably Coating have both are fully facilities to hot-dip our by plant, efforts. and plants growing our site We beginning the for second

is outlook for year full solid is a activity. segment’s Energy seasonally strong quarter Our and outage and QX turnaround

turnaround very over strong half to turn summary, in confidence year. financials fall. detail. the Paul experiencing currently We developments are the that, I With activity In giving Fehlman second to it these more positive are strong in this us will the discuss of

Paul Fehlman

Thank you, Tom.

to $XX.X last higher finished the $XX.X For income charge million, million sales $XXX of quarter XXXX, year the which up XX.X% last income was drove $XXX,XXX the consolidate to and a second grew of plants X.X%. to backlog Coast. slight XX% EPS year XXXX. fully This of at the quarter $XXX.X fiscal or second Reported which decrease included second XX.X% million, quarter Operating $X.X we $X.XX ‘XX year. of compared operating reported the million, two net on versus increase of $X.XX to second diluted than quarter our was fiscal galvanizing for fiscal million a Gulf a

Our finished X.XX% year. quarter compared ratio to X.XX% book-to-revenue second quarter the second at in last the

from result we zinc quarter ship operating at second a second Gross as $XXX,XXX margins galvanizing labor compared the XX.X% to rose XX% quarter we headwinds of to two or took of XX% margin of And rising rates. total as quarter of the finished expect second generated On comparative last fiscal were sales costs and the lower U.S. basis XX.X% quarter quarter experienced the of XX.X%, year-over-year for to of We the year. interest for last outside points XX% year. the consolidate increasing a quarter as the realized our XXX the charges XX.X% X.X% of in plants. basis, SG&A second to XXXX. continued year compared expense prices, than result, last to compared quarterly in we the X.X% of margins interest mainly a the same backlog

$XX.X Act the Cash from quarter Cuts on tax year rate flows last year to compared XXXX. half half or XXX% performance million first income. Our ago the Tax by ‘XX of operations the to second XX.X%, the in to compared rate in of effective by XX.X% first Jobs net the higher improved improved driven and a of fiscal

to took generating XX% second experience for to Coast income of $X.X the same record headwinds the over it to for quarter last concluding consecutive year, as back in $XX.X the Energy Operating time X% second to million quarterly In and income to to year, compared second and million turn prices for With which second of year. to compared Tom zinc year second realized the to remarks. the higher $XXX.X on the X.X% year, Tom? margins the for labor I’ll the the of compared our plants costs. the we while segment. compared Coatings compared of XX.X% consolidate of Gulf a the second charges segment quarter grew that, quarter year. in his fell margin quarter quarter million As the a prior X.X% XX.X% quarter second last to second AZZ the $X.X segment to rose XX.X% compared the Metal second the quarter to were business, for in Operating revenues Coatings results, up to second million our quarter million, operating X.X% revenues XX.X% our prior quarter in million the XX.X% margins to last last second increase the $XX.X new continued year grew were last the operating in income growing compared an segment to period Metal was $XXX.X gross the quarter as to the

Tom Ferguson

gaining Thank about you, We XXXX outlook are quarters Paul. solid year two remain optimistic fiscal our after in confidence of performance. cautiously and

We annual diluted share with fully the $X.XX range are fiscal XXXX the $XXX earnings to narrowing upside our in to guidance to range $XXX per of million in per share $X.XX of for and sales the million.

are experiencing improved activities. we market about organizational feel and We our conditions confident realignment generally and changes

executing drive strategic on are operational improved we Additionally, performance. to initiatives our

We the labor created on positive commodity investments as actions our profitability reform, by the the on improved tax retention, manage hiring from costs we've taken many pleased customers. are both our impact of demand well with of and and our as to and

balance focus to positioning questions. that, continue fiscal the it XXXX XXXX. for With of year We on I'll for driving strong AZZ up fiscal performance in a open will and

Operator

Thank Company. will Franzreb begin The Ferguson. Instructions] of John [Operator session. question Mr. now the & we Please gentlemen, you, first Ladies will go and ahead. be Sidoti from question-and-answer

John Franzreb

Good morning, guys.

Tom Ferguson

John. morning, Good

John Franzreb

about would business, when you zinc in First Metal takes can that be in price on bit fully it little absorb and talk the reflected fully increases to how the a P&L? decreases long Coatings you and

Tom Ferguson

prices takes the and six about were of March. John, the that of February, It eight in part kind to months, year peak first

into and pretty we’ll start we’re lower confident to fourth why particularly volumes that end get higher of the this that's towards the seeing quarter quarter. with So

John Franzreb

your efforts you in customers? there could And it. just what kind what describe market timeline to doing to get lost and some metals, of back Got of regain share you’re the

Tom Ferguson

a quite regained we’ve like feel already. few We

reign in a of were Our or focused two purely regions sort as free on where operations while margin. was felt a like that three focus probably had our competitors for we

third I that I balance effort have we January we – think what a lot think sales of get already. still change comfortable on calendar we with of you I for are mean to to relationship, the started the satisfied are and – the going regaining quarter, a see the So, we make getting professional but our other building cost that lost at force pretty share lot just sales I the building value, in and in you’ll be really through of got in that to coverage, some that the away, really would revenue focused of them into highly of see progress we’re out not taking We’ve making this as customer but the be anticipate we’ll regions. turn ways year we that then most it

John Franzreb

talk than months you, side just can had Perfect, seems was good few expectations it relatively I full And a better what’s going energy of fall you is equally like okay. work that say little market, to you bit good better, the to on spring ago? turnaround be business, back your about driving came deferred as the a not season, for know if the describe can some the you that

Tom Ferguson

Yes, good. is I looking the ball think really

resources. Our is now challenge balancing

So as all like we to pretty say in right much the oars I now. have water

So, folks balance to teams business welding quality engineers folks. in our the and project are trying project and solutions

that typical Europe in the that we well able globe, haven’t on refinery in Canadian higher industrial Nuclear still America much much pretty aligned that’s seeing been Latin okay, full business, our resources and we opportunities side. but industrial business. be on the pretty our robust, our are we to So, focus across so our in as as are to outages

I hand, wish had of we And real but it feel made more would we on that while one hand about third quarter. on other a the few have kind So, second resources, probably quarter. this good tougher

So, now. we feel real good right

John Franzreb

looking half to is thought first Just relative I not the case? second was business half, your you implied that nuclear better that

Tom Ferguson

our the and parts solution is business. Well, piece, is pieces One and Nuclear side there is certification. Logistics and components Inc. which there nuclear different on the is is the maintenance two to more then focused which welding around

tend they different. still to they we And use little a tend organization, so run integrated sales while to run an –

that So batteries on – is like they nuclear on that. business, opportunities, that what new we their are focused feeling NLI traditional about and are focused better things are they

in cut utilities probably about So think as of terms inventories of we that’s and that their much where have terms the can components. as in they

feel better that. we So about

market. we on too opportunities are totally we also are the whereas We last of feel focused better seeing about the some international almost year traditionally the domestic

that’s feel and overall So NOI. the better international on why nuclear side we

John Franzreb

Perfect. I get Thanks, back Tom. to queue. will

Operator

Noelle The next question Stifel. will of be from Dilts Please go ahead.

Noelle Dilts

little any wanted would us if particularly geographic to terms a are more seeing tightness less could there the of more, into Hi, areas crafts give tight welders, thanks. if a you dig feel I are labor in there difficult side if sort from if and helpful? of better and that supply standpoint or comment on you things which any is tightness are you that in of a could bit for be

Tom Ferguson

above. the all got of it’s Yes,

hit access will with I good to all craft. you the think start we welders have the on got I Noelle. points,

right have craft we we third see probably what so got to now And the handle quarter. in enough

of worried the As we I’d outer forward, we in are look more welders say about probably years. supply

ways. we better us the variety of we programs unions we the working to work So, in that make group with on the training of sure to with are available best and a have that try got working

fairly have a good we In story. for coating available union So we renegotiated right us. it’s those what’s side, the some different to contractors contracts and of with metal feel now

call out almost but in well. area ones, not We have we some I have am issues. as any every going got regional to specific competitors

attract the have, increased one allow $X a of areas, labor. two, by to and better semi-skilled unskilled individual is have in little we the those of folks wages $X So, retain to to experienced quality folks, to us we that most

but – fill So we had our ranks able some pretty in to been well. issues we’ve

quickly up, job doing evaluate we fairs, ramp do recruit, and more retain. how in, how we getting them we bring at then we’re and creative how We’re get them we do folks how how oriented we

doing become and in it’s had more in and we Metal how had well success find side, So Coatings – as and both job the craft we’re we’ve unskilled to Electrical those we fairs. that semi-skilled as in innovative with the

folks to Resources a we’re lot we folks better getting better in. Human at tools that are a our and bring using the So getting lot at need

going efficiency look forward. think uses I but I be productivity drive there's to continue and some to pressure, think we’re good on other we’re to hand, feeling the how able as about

lot or California the a increase to really not more the not So, pressure in cost wages because high some Northeast. we’re up seeing in of like areas we’re

feel and recruit pretty new we’re about through adjustments South Midwest, about using made the we’ve the techniques in good and and find, we folks. the somewhere to So the retain

Noelle Dilts

then of That's directly expand on I and receptive specifically and the where Okay, pricing and both you. And the could there of to been steel indirectly in impacting tariffs you hoping has as helpful. raw relates particular in on bit thank very and terms market a – was inputs? it how kind material you that’s

Tom Ferguson

We Yes, – varies. great question. and it

on think of have as pretty with to seen feel looking the steel dealing and I forward so need, most Metal we we’re impact they at much the Coatings were to good there fabricators contractors in access haven't where – it impact, some the we side, talking particularly have least some tubing. fabricators. to electrical seen as and our had we’ve what oilfield-related comes tariff When impact products we’re the

wasn’t -- and enormous us, working to its and tubings mitigate they’re We’re for adapting. two, small pretty unit relatively adaptive are It because that. business

tubular through for and costs. into project has our anticipation When that cost access of most able to the there because pass in basis plate to the able bids of we've been been that we in We’ve to of higher and some so been it good about it particularly. get forward their to metal sheet enclosures increase comes particularly So, feel steel business. steel going the terms is

So, pushback we‘ve are at reflected we've been the and in a project our been cost, our lot of plate as pass a a sheet not just basis. from little we’ve But access had seen experiencing customers not the able because a on has margins of to which customers it needed thing. same we lot that higher to through

So with we close in – we’re where of JV we in could kind attention WOFE a a reasons is worse not one some stated. more of China, situation as the able and any get the to have to our to tariffs China locally on It's to backlog. worse, have margins impact instead want impact trade paying the of the something be case or we are we China manufacture moving not projects of it was just gets on in

front good hard we feel feel fact months steps work, we talking but China. of legal we the made been and So, about business of finance our the steps teams, once a – with the in we’ve and worse the last lot Street today Journal taken things few page the think getting about again Wall and particularly right with we’ve in

Noelle Dilts

great. you volume of some us you're Okay, one seeing walk that Could then galvanizing some terms on just me. side the through and last in the trends operate. of which verticals in for the And you one of

et for solar, little feel a T&D, a OEM the what’s bit cetera? of So on going

Tom Ferguson

is to Yes, respond that. Paul going to

Paul Fehlman

morning. good well, Yes,

addressing. uptick funny enough, general that industrial are upticks and high an in that pretty So, [which in construction, strength got seeing seeing market. good agriculture a in across the utility in and electric well and some particular has on current as pickup in OE as tiny as trends We we second almost side, end flat the way] quarter every the had we’re are we’re end-market

the and in we the more doing interpretation economy where in would some are the that also anticipated agricultural possible the picks is it’s issues to has time fall. year agriculture, head we storage the say, as the grains with do China up for units general on some is into that building I this of So as of really well, up uptick

Noelle Dilts

perfect. Okay, you. Thank

Operator

Jon will ahead. Please Braatz of Kansas City next Capital. go The Instructions] [Operator from question be

Jon Braatz

Paul. Tom, morning, Good

Tom Ferguson

Good morning Jon.

Paul Fehlman

Good morning Jon.

Jon Braatz

was Just to some the segment? there the business, in quarter galvanizing side incremental revenue this follow-up on of the galvanizing acquisition

Tom Ferguson

our is – other We Yes, Brothers than facilities. more Rogers they bought spending was. which have most there of

yes Paul you it. And a so relatively nice small. more been probably still that’s on color give little a addition, could

Paul Fehlman

an actually Yes, Brothers, February I that won’t give you at we and regarding at fiscal was Rogers the in which pick up numbers, then ‘XX of the end the bonus purchased end PCM did on Powder but June quarter. the the for of second extra you fiscal so month, you, month get extra Jon, Coatings side at get little there ‘XX, in you

in yes, organic. If you look there there, was pick up a

Jon Braatz

Tom, Okay. China reports we standpoint, slowing are things reason. about picture bigger maybe in for down from whatever hearing a

as sense you or is look and the maybe weakening for forward market XX, are you? relative question give indirectly, Chinese important be is for directly important my market how seeing the a you XX any you us can months Just either you Chinese might how

Tom Ferguson

contracts in have a business very and infrastructure. for bus Massachusetts, but projects Chinese we contracts, are well Those the Yes, got us up are long-term those very necessary high in between large China’s our voltage negotiated backlog customers.

see our we fair forward. those and moving us terms between Obviously we have So believe that there. we contractual customers got are

So, to backlog year high years opportunities. the we there not is so in hand other voltage still are is next for there worried too our and bus, X for

that flexibility us JV margins. if we more things own domestically be our manufacture So, to was give okay. without to would impacting in to change worse control more I able by from where Like a operation China and should to said be for our we mostly get look

nuclear business the the affected some just ground come moving as Part is of equipment have side, rebuilds those when that don’t on it in sure to with want for we up coker market we we well solutions the turnarounds rebuilds, and We side. being the welding make as as for entrees drum coker have On got and been country. other our making some resources into see well.

on pretty of the been in have and place. we X well getting we feel something that for years part So, working positioned better there,

outlook of customs, a but are up not we them. for it’s that So it’s solutions, part hung not the welding the mercy in huge at not getting of for things

Jon Braatz

can canceled, or or business delayed, the all change Yes. be at Is at change China, all? bus can terms in the dates the in backlog it contract the

Tom Ferguson

don’t for and could we There that’s convert have In and we the them strategic order. is it’s still just of the good partners. partner impacts. be the changing cancellation in for do taken the and those our nature feel still We too, clauses there given have source. Obviously, likely there effect, projects JV

so we business nature in very well are strategic And contracts took projects to for of doing still infrastructure. we and was feel of terms connected how these the the Chinese way there we due the these

So, while, largest yes, go there but these are the like second to Chinese is And put records always up. a way, chance award you the feel hydroelectric projects there need And like those most the could we by well dam fairly be feel as in strategic know, recent importantly, that some forward. is changes, protected, we more to world. the the

us So, it comfortable. makes

Jon Braatz

Alright, Okay. much, thank very Tom. you

Tom Ferguson

you. Thank Alright.

Operator

gentlemen, remarks. and will for would session. Ferguson conclude closing I conference our ladies like And this the question-and-answer to to Tom his hand back

Tom Ferguson

to Michael. of today’s forward conclusion quarter we in to thank thank and in participating that again, is way talking and third look call for once nobody Hurricane at of Thank you hope our And you. you Well, again the the you. we

Operator

gentlemen, Thank you attending you, today’s has concluded. sir. Ladies conference presentation. for Thank and the

disconnect lines. your now may You

AZZ (AZZ) 9 Oct 182019 Q2 Earnings call transcript